New year’s resolution may be too late

Like all new year’s resolutions, the sooner we change, the more we benefit. And much like our health, the consequences of poor financial decisions can take years to appear. Fortunately, it is possible to restore our financial health later in life.

Just like exercise, but different

But just like exercise, the longer you delay saving, the harder you have to work to restore your financial health. So unless you have access to a trust fund or have earned a generous pension, you will need hundreds of thousands invested (a nest egg) to generate income for you when you are no longer able or no longer want to work.

There are two ways your nest egg can grow: contributions and investment returns. Thanks to the power of compounding interest, early, consistent contributions can grow to hundreds of thousands of dollars during your lifetime. If you’re young, start now because you will need to invest twice as much for every decade you delay.

If you’re not so young, start now. Further delay will only make the situation worse. Thankfully, this is not your health we’re talking about. You can turn this ship around if you to want to badly enough.

Smart strategies for a late start

When time is not on your side, you have three options. (1) You can work longer than you intended to make up for a smaller nest egg, (2) or you can make bigger contributions. (3) Some people even take on more risk in hopes of making up for lost time.

This is not a good idea.

Riskier investments, late in life is akin to going “all in” at a casino, hoping your luck has changed. This strategy will work for some investors thanks to dumb luck, but the vast majority will find themselves worse off than before.

If you have a large income, the solution will be simple—but not painless. Bigger contributions might require you to downsize your lifestyle, but you by no means will have to be frugal.

If your income isn’t quite as large, then you’ll need to cut some unnecessary expenses, earn more, or both.

So when is it too late?

What is the lesson here? Is it too late to begin saving? No—like all positive changes, the sooner made, the better off you’ll be. Begin saving today (or paying down debt) because even a modest nest egg will have a profound impact in your golden years.

Here’s four steps to get you back on track:

1. Start now with a written plan outlining your future needs and aggressively eliminate any debts
2. Contribute as much as you can by following a written budget
3. Invest responsibly with low-cost index mutual funds and a plan for allocating your investments
4. Don’t rule out valid options like downsizing your goals, working longer, or finding a career you can enjoy part-time during retirement

You might also want to checkout Four Steps to Financial Success, a pamphlet on four key steps to achieving financial success. Also, make sure to subscribe to On Financial Success to learn how to grow and protect your wealth.